The COVID-19 pandemic will have lasting effects on Pennsylvania’s economy. It will reduce the Commonwealth’s ability to collect tax revenue and shore up budget deficits.
Previously, Governor Wolf and the General Assembly have not exactly seen eye-to-eye on the amount of money the state should be spending. While this situation has improved over the years, it may become worse as the pandemic drags on.
In late May, these groups came together and passed a stop-gap budget that funded many of the state’s programs at the previous year’s rate. However, this enacted budget was only a five month budget and will be coming to an end very shortly.
While the Department of Education was fully funded for a year, many of the other state agencies are currently in limbo waiting to see how the remaining seven months of this fiscal year will pan out.
As we move closer to budget negotiations, Pennsylvania will want to find some short-term and long-term solutions to provide tax revenue that will not be imposing on the people of Pennsylvania. As the pandemic continues, the services provided by the state will be vital to ensuring stability and reducing infection rates. However, if the state doesn’t have consistent revenue streams, it will struggle to provide services.
Below are just a few potential long-term or short-term solutions that the General Assembly could look into in order to provide some stability in the future. As top Pennsylvania lobbyists, we have been monitoring each of these on behalf of our clients.
CARES Act Funding
Pennsylvania received $4.9 billion in CARES Act funding in March after President Trump signed the first stimulus package. Of the $4.9 billion, $3.9 billion could be spent on “unforeseen financial needs and risks created by the COVID-19 public health emergency”. The additional $1 billion was earmarked and sent to Pennsylvania’s seven largest counties in April.
At this point, Pennsylvania has only managed to appropriate roughly $2.6 billion of the CARES Act funding, leaving around $1.3 billion in reserve. But why? Well the Governor and General Assembly kept some money in reserve for additional emergencies and programs, such as the Dairy Industry Relief and Food Security Programs and Hazard Pay Grants for front-line workers.
Regretfully, the CARES Act funding currently cannot be used to make up lost revenue or cover expenditures that would not be covered otherwise. This lack of flexibility limits how the Governor and General Assembly may appropriate this funding, making it a challenge to balance the budget and patch budget deficits.
The HEALS Act in the U.S. Senate includes a provision that would allow local governments to use some CARES Act funding as a way to close budget deficits. Now, we just have to see if this provision makes it into the final version of the second stimulus package. Our team in Washington, DC, is in close contact with Capitol Hill and is monitoring this provision.
While this is probably a more short-term solution, ensuring that Pennsylvania has some financial stability will only make it easier for the commonwealth to maintain a balanced budget and services for the next few years.
Recreational Marijuana
Previously I’ve written about medical marijuana, and the changing attitudes surrounding recreational marijuana in Pennsylvania. If you haven’t read it yet, feel free to check it out and learn about its history in the Commonwealth.
My post highlighted a report by Auditor General DePasquale that stated that recreational marijuana could produce an annual tax revenue of $581 million for Pennsylvania. As well, I noted the successful revenue production in Washington State and Colorado, each reaching a $1 billion in tax revenue after roughly 7 years.
The COVID-19 pandemic has had significant impacts on industries across the United States. However for now, it looks like the cannabis industry is doing well. Colorado, Illinois and Oregon are all having record-breaking years for cannabis sales, with Colorado and Oregon topping $100 million in sales. These sales are a continuation of the trend that started in 2019, where cannabis sales exceeded the National Basketball Association’s annual revenue in the U.S by almost $2 billion.
While Governor Wolf and Lt. Governor Fetterman are supporters of recreational marijuana, there has not been significant support for the product from Republicans in the General Assembly. Senator Sharif Street and Representative Jake Wheatley, both Democrats, have introduced legislation to legalize recreational marijuana, with little movement so far.
While there has been some limited discussion or expression of interest in recreational marijuana from Republicans, we may have to wait until the General Assembly begins working on the second portion of the fiscal year budget this November in order to find out if marijuana will be contender to stabilize the budget.
Ultimately, legalization is a long-term solution, enabling the commonwealth to collect revenue from this booming industry for years to come.
Esports Gambling
The gambling industry has quickly grown in Pennsylvania over the past fifteen years. Gambling in PA dates back to the legalization of racehorse gambling in 1959, and the creation of the Pennsylvania Lottery in 1971. However Pennsylvania has seen a significant revenue growth from the recent additions of casino, online and sports gambling.
These expansions have paid out for Pennsylvania. For the calendar year of 2019, gambling revenues increased by 4.5% reaching just above $3.4 billion in revenue. That was the fifth straight calendar year that casino revenues grew in Pennsylvania, with $1.5 billion in tax revenue having been received by the commonwealth. However, the COVID-19 pandemic has significantly reduced the tax revenue coming from the casinos in Pennsylvania.
Nevertheless, Pennsylvania should continue to look for additional ways to expand the gambling industry. Fortunately, there is quickly growing sector of the gambling industry that remains untapped by Pennsylvania – esports.
Esports is a growing spectator sport and is projected to attract over 500 million viewers globally a year by 2022. We are already seeing large investments into esports here in Pennsylvania, with teams like the Philadelphia Fusion and the Harrisburg University Storm already finding success. Around the country, colleges and universities are offering scholarships for esports players, with some even starting to build stadiums for their teams.
Reports released this year project esports global gambling to reach $14 billion in revenue in 2020, with other reports putting the revenue forecasts as high as $17 billion in revenue.
Early on in the pandemic, the esports industry was not high on the prospects of esports gambling in Pennsylvania. And for the moment, only two states have started to allow some form of esports gambling, Nevada and New Jersey, with Pennsylvania limiting the gambling due to more restrictive gambling laws.
While generational issues surrounding esports and gambling will take some time to overcome, this could be a long-term stable stream of revenue for Pennsylvania and potentially limit some of the impacts of the Coronavirus on the state’s budget.
This blog post was written for Ridge Policy Group, deemed top lobbyists in Washington DC, and Harrisburg, PA, by clients and others, by Aaron Dimick. Aaron is a key member of our Pennsylvania Lobbying Group.
